Tax Policy in the New Congress: What to Expect

When the new Congress convenes in January with Democrats in charge of the House for the first time in eight years and Republicans retaining control of the Senate, there will be some show of bipartisanship and possibly some legislative action but no new, dramatic changes in tax policy.

That was the takeaway from a roundtable of Republican and Democratic tax policy experts with experience in either the Treasury Department or Congress, sponsored by the Urban-Brookings Tax Policy Center on Thursday.

The future direction of tax policy is “especially murky,” said Mark Mazur, former assistant secretary of tax policy at the Treasury during the Obama administration, now the Robert C. Pozen director at the Tax Policy Center.

(Related: Should Tax Hikes Need Supermajority Vote/?)

In addition to a divided Congress, tax legislation will be hampered by the growing federal deficit — federal revenues are expected to fall while spending rises — slowing economic growth that will eventually devolve into recession and a wildcard president unlike any other. “The “future ain’t what it used to be,” said Mazur quoting Yogi Berra.

Under the Trump White House and its “inconsistent policy positions… it’s hard to scope out the possibilities for legislative deals,” said Mazur. “There will be a lot of drama in the next two years. There will be a few legislative achievements but largely in areas outside of taxes,” such as criminal justice reform and minimum wage, said Mazur.

Still a bipartisan panel at the Brookings roundtable suggested possible bipartisan cooperation on some items included in the House Republican year-end tax bill sponsored by House Ways & Means Chairman Kevin Brady (R-Texas), primarily tax extenders, though not necessarily before year-end.

(Related: Sweeping Tax, Retirement Bill Released in House)

The bill includes such items as extending the tax credit for electric cars as well as deductions for mortgage insurance premiums — available to taxpayers who itemize — and for college tuition and related costs, available even for taxpayers who don’t itemize.

The panel was less confident about passage of the retirement savings items in the Brady bill, including provisions for pooled employer plans and the repeal of the maximum age limit for traditional IRA contributions.

“Democrats have no incentive now to take up the retirement portion [of the bill],” said Sandra Salstrom, former deputy assistant secretary for legislative affairs at the Treasury Department during the Obama administration, now legislative director of American Federation of Government Employees (AFGE).

Even if House Republicans pass the Brady bill, as is — it hasn’t even been scheduled for a vote yet and time is short — it would need 60 votes in the Senate to pass, which requires Democratic votes.

When the next Congress convenes, Brady will be replaced by Rep. Richard Neal (D-Massachusetts) as chairman of the tax-writing House Ways and Means Committee, whom the panelists agree tends to reach across the aisle. In addition, the committee is expected to include many new members, especially on the Democratic side, which will mean “some growing pains,” said Salstrom.

She anticipates House Ways & Means hearings on the Republican tax bill that passed in late 2017, looking into some of the “minutiae,” since public hearings were never held before the bill was passed, and hearings on President Trump’s tax returns. Both, but especially the latter, could create tensions between the two political parties and jeopardize hopes for bipartisanship.

The panel provided some insight into the differences between the two parties which are likely to continue into the next Congress and preclude major tax changes.

For example, when individual tax rates are addressed in an effort to make them permanent, which has some bipartisan support, “the battle will be on the top tax rate and earned income tax credit,” said Cathy Koch, former policy advisor to Democratic Senate leader Harry Reid, now the Americas Tax Policy Leader at Ernst & Young. “The Dems will say yes [to making tax rate permanent] but want an expanded EITC.”

Republicans will then “look at the deficit-financed part of the deal and ask where do you do the surgery/?” said Mark Prater, former chief tax counsel for the Senate Finance Committee, which he joined in 1990,

“It’s  hard to see a deal happening, and we have only nine to 10 months before the 2020 election cycle takes over,” said Salstrom. “I’m ever hopeful but skeptical.”

(Related: Should Tax Hikes Need Supermajority Vote?)